Makin' Money

Apple and you

Chris Farrell Jan 19, 2011

Apple Computer reported record quarterly earnings. The high-tech behemoth is at the epicenter of an emerging corporate spending boom on information technologies, especially on the mobile Internet.

However, the company’s immediate future is uncertain now that its charismatic leader Steve Jobs, a cancer survivor, has taken a medical leave of absence.

This morning Tess and I were talking about this smart column by Brett Arendts at the Wall Street Journal. Odds are, you’re a secret Apple stockholder.

Apple is everywhere on Wall Street. Few stocks are as widely held in regular mutual funds as well as in hedge funds. Few affect the performance of so many retirement portfolios. This is especially unusual because Apple is such a volatile growth stock. In recent years it’s fallen by two-thirds and it’s quadrupled. Most of the other shares that crop up in every portfolio are dull ones like Exxon Mobil or Procter & Gamble or Johnson & Johnson.

Investors in mutual funds, especially in their retirement savings plans, do have a stake in Corporate America.

Speaking of investors, dividends matter when it comes to stock market returns. Think I’m kidding? Check out this chart at Visualizing Economics. It’s a wonderful site started in 2006 by Catherine Mulbrandon that uses graphics to bring alive aspects of the U.S. economy.

The graphic shows how much of the stellar long-term return of U.S. stocks came from dividends.

Companies don’t pay out as much in dividends as they used to, even though the current tax rate on payouts is only 15%. Managements prefer the flexibility of stock buybacks to the scheduled demand of dividends. The latter are a better deal for investors, however. Dividends tend to keep management more honest, too.

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